A version of this article was published in the January 2024 edition of Healthcare News.
Governor Gavin Newsom signed California Senate Bill 525 (CA SB 525) on October 13, 2023, rolling out a new minimum wage standard for health care workers. CA SB 525 impacts most California health care employees and facilities, setting the new standard at $25 per hour, increasing wages up to 30% beginning June 1, 2024.
Impacted Health Care Employees—and Employers
CA SB 525 sets a new salary threshold for exempt health care employees. This legislation will have broad-reaching impacts on California health care employers, whether or not they’re directly subject to these requirements, as salary expectations will increase for the entire market.
Covered employees, per CA SB 525, are those providing patient care and services supporting providing health care, or members of a health care team including certified nursing assistants, technicians, patient aides, food service workers, housekeeping, medical coders and billers, schedulers, laundry workers, and more—including contract workers. The expansive definition is designed to combat the shortage of health care workers in the state of California.
Employees Not Covered
Outside salespeople, public sector employees who don’t perform health care services, delivery or waste collectors not covered by a health care facility, and medical transport service workers who aren’t employed by a covered health care facility are among workers who don’t qualify.
Impact on Employers
Nearly all health care employers will be required to implement these new minimum wage standards except hospitals controlled by the California Department of State Hospitals, Tribal clinics exempt from licensure, and outpatient settings operated by Tribal organizations.
This law also limits a health care employer’s ability to meet the salary threshold required for most exemptions from overtime pay and minimum wage. Employers can avoid paying the new minimum wage and overtime to salaried employees earning a monthly salary that’s no less than 150% of the health care worker minimum wage or 200% of the applicable minimum wage, whichever is greater, for full-time employment.
By June 2026, most salaried health care employees must be making $78,000 annually to be exempt from the new minimum wage and overtime pay requirements.
The California Department of Health Care Access and Information will publish a list of all covered employers in January 2024. If employers believe they are erroneously listed, they can appeal or apply for a waiver.
Covered Health Care Employers
Integrated Health Care Delivery Systems and Hospitals
Integrated delivery or health care systems with 10,000 or more full-time equivalent employees as of January 1, 2023, will increase the minimum wage in stages starting at $23 per hour in June 2024, graduating to $25 per hour by 2026. After 2026, the minimum wage will increase according to the rate of inflation or 3.5%, whichever is lower.
Facilities Where Increase Applies
- Licensed, acute psychiatric hospitals, and special hospitals as defined in subdivision (f) of the health and safety code
- Covered employers with a dialysis clinic or an owner, operator, or controlling entity of a dialysis clinic
- Entities operated by counties with a population greater than five million as of January 1, 2023
- Psychiatric and mental health facilities
- Urgent care clinics
- Ambulatory surgical centers
- Physician groups
- County correctional facilities that provide health care
Rural or Independent Hospitals, Clinics, and County-Run Facilities
Rural and independent hospitals with a high or elevated governmental payor mix, or entities operated by counties with less than 250,000 residents as of January 1, 2023, will see a longer process. These employees will have a new minimum wage starting at $18 per hour in 2024. Every year, this minimum wage will increase by 3.5% yearly until it reaches $25 per hour in 2033. This applies to psychology clinics, specialty care clinics, and dialysis clinics.
Covered facilities that are owned, affiliated, or operated by a county will be required to start complying with the minimum wage schedule beginning January 2025.
SNFs, Home Health Care Services, and Others
For other health care facilities that don’t fall in the above categories, including licensed SNFs owned, operated, or controlled by a hospital or health care system, the new minimum wage will start at $21 per hour in 2024, increasing to $23 per hour in 2026, until it reaches $25 per hour on June 1, 2028.
Waivers and Alternative Phase-in Schedules
Health care employers seeking a waiver or requesting an alternative phase-in schedule need to demonstrate that compliance with these standards would raise considerable doubts about the covered health care facility’s ability to continue as a going concern under generally accepted accounting principles (GAAP).
This includes documenting the covered health care facility’s financial condition, the condition of any parent or affiliated entity, and evidence of the actual or potential direct financial impact of compliance.
The following must also be specifically addressed when requesting a waiver regarding the covered facility or affiliated entities:
- Actual or likely closure of the covered health care facility or any affiliated entity
- Actual or likely closure of patient services or programs
- Actual or likely loss of jobs
- Whether the covered health care facility is small, rural, frontier, or serves a rural catchment area
- Whether closure of the covered health care facility would significantly impact access to services in the region or service area
- Whether the covered health care facility is in financial distress that results or is likely to result in the closure of the covered health care facility or any affiliated entity, closure of patient services or programs, or loss of jobs.
Factors to consider in determining financial distress include, covered health care facility’s prior and projected performance on financial metrics, like cash on hand, or if the covered health care facility has, or is, projected to experience negative operating margins.
Minimum Wage Requirements Effective Dates
We’re Here to Help
If you’d like assistance in evaluating and mitigating the impact of CA SB 525 on your organization, please reach out to your Moss Adams consulting professional.